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UNCLAS SECTION 01 OF 07 TOKYO 002177
SIPDIS
PARIS PLEASE PASS TO USOECD
STATE PLEASE PASS TO USTR
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: ETRDECONJAZOEAGR
SUBJECT: The Japan Economic Scope - May 11, 2007
Sensitive but unclassified. Please protect accordingly.
¶1. (U) This cable contains the Japan Economic Scope from May 11,
¶2007.
2.(SBU) Table of Contents
¶3. Keidanren DG on Mideast Trip, FTAs and Upper House Elections
¶4. Advisory Committee's Recommends Joint Studies for a U.S. --
Japan FTA
¶5. Tokyo Uneasy on New WTO Paper on Agriculture
¶6. Japan Still Heavily Dependent on Oil from Middle East.
¶7. Beef Audits to Start May 14
¶8. Health Ministry Backpedals on Flawed BSE Test?
¶9. Regulatory Reform Working Groups Set to Meet in Tokyo
¶10. Abe's Downward Spiral Spurs Reform Efforts
¶11. Deregulation Leads Private Firms to Offer Trade Insurance
¶12. The New Coop Law Goes into Effect this Summer
¶13. Jobs Galore in Central Japan
¶14. Slow Growth of Kansai Economy in 2006, but the Gap in SMEs to
Grow
¶15. New Chairman of Kyoto Chamber of Commerce and Industry
¶16. Microsoft Committed to Becoming Local Company in Hokkaido
¶17. Bye, Bye, Kei Igawa
¶18. Red Sox Japanese Imports Doing Better
¶3. (SBU) Keidanren DG on Mideast Trip, FTAs and Upper House
Elections
---------
Just back from the Mideast having arranged Keidanren's massive
participation in PM Abe's stops in Riyadh, Dubai, Qatar, Kuwait
and Cairo, Keidanren Director General Nakamura described his
first trip to the region as "mind-boggling." The heat, the
religiosity, the perceived low native work-ethic, the enormous
contrast in development across the region: all provided points
for astonishment. Nakamura reported that the 100+ Japanese
executives who accompanied the PM never met a local businessman -
- their meetings took place with government officials only.
Consequently, although impressions were vivid, the nature and
pace of the trip -- five stops in as many days; only 11 hours on
the ground in Cairo, for example -- led to no noteworthy
commercial development.
Nakamura told EMIN on May 10 that he is putting a great deal of
effort recently into the Japan-Australia FTA, including working
with politicians and industry associations on the question of
agricultural reform. When asked what the outlook was for reform
of Japan's agricultural sector, however, Nakamura said the
prospects were "hard to see." He bluntly reported that Keidanren
has done nothing to build support with politicians or other
interest groups for its proposed U.S.-Japan FTA.
On July's Upper House election, Nakamura compared the current
campaign unfavorably with France's recent elections. There, the
focus inspiringly had been on the future competitiveness of
France. In Japan, there is nothing but a dismal debate over
disparities: gaps in income or between rural and urban areas. He
described the LDP's campaign as lackluster, but the opposition
DJP's was even worse, with party leader Ozawa representing
nothing but an image of "old Japan." (ECON: Hans Klemm)
¶4. (U) Advisory Committee's Recommends Joint Studies for a U.S.
-- Japan FTA
-----------
The Subcommittee for the Council on Economic and Fiscal Policy
(CEFP) studying Japan's strategies for bilateral / regional trade
agreements and agriculture reform issued an interim report on May
¶8. The report encourages the government to accelerate trade
negotiations and reflects a strong sense of concern about Japan's
slow progress due to the desire to protect domestic farmers.
The report recommends joint studies on a U.S.-Japan Free Trade
Agreement, urging such an agreement extend beyond market access
and include investment, services, standards and certifications,
and transnational movement of persons. It urges the agriculture
sector to enhance productivity particularly on rice, wheat and
pork to better compete against U.S. imports. It also recommends
revising the minimum access system for rice and abolishing the
gate price system (currently used for pork), in which importers
must pay the difference between the shipment's value and the
minimum price set by the government.
TOKYO 00002177 002 OF 007
The KORUS FTA and South Korea's recent negotiations with the EU
seemed to have sparked the Council's concern. As one analyst
pointed out, the report recommends "swift preparations" for an
FTA with the EU while it only calls for "joint studies" for an
FTA with the United States. In either case, reaching an
agreement with ASEAN is still the top priority.
In addition, the report urges the government to conclude higher
levels of trade liberation than past agreements and recommends
discussions on eliminating tariffs that are below 10 percent and
reducing excessively high tariffs.
On agriculture, many of the measures are concentrated on
consolidating farmland, including, among others, an option to
exchange idle land for stock, reviewing farmland tax and zoning
regulations, and a new system that would allow farmers to lease
fields for terms of at least 20 years. Measures to enhance the
number of business-minded farmers, and a proposal on giving
foreign farm workers resident status are also put forth.
Foreign Minister Aso reportedly distributed an EPA "roadmap" at
the full CEFP on May 9 that showed the GOJ studying free trade
agreements with the United States and EU as "future items," but
refrained from citing any details as to how negotiations should
proceed.
At a Diet session the same day, Agriculture Minister Matsuoka was
critical of the recommendation to reduce tariffs, expressing
concern that it could work as a disadvantage for Japan in the WTO
negotiations. To what extent the proposals will be reflected in
the government's economic and fiscal policy guidelines due in
June still remains to be seen, especially with the elections
looming in July. (ECON: Ryoko Nakano)
¶5. (U) Tokyo Uneasy on New WTO Paper on Agriculture
------------------------------
Like other key WTO members, Japan is uneasy about the paper on
agricultural trade liberalization drafted by Agriculture
Commission Chair Falconer and released on April 30. The draft is
being criticized by most member countries, because it suggests
limiting the number of sensitive farm products to five percent of
the total number of tariff lines - well below Japan's proposal.
Agriculture Minister Matsuoka has said that he cannot accept and
has reportedly agreed with Indian Trade Minister Naht that the
paper too much favors agricultural exporters over importers.
A contact at Japan Agricultural Cooperatives (JA), the country's
largest farming organization, known for its strident
protectionist views, shared the same views. He told us he was
especially concerned that Falconer's draft did not give any
details on tariff caps.
A MOFA official did not seem too worried about the draft. Noting
the upcoming G-6 meeting in Paris, he quipped that Falconer must
be doing his job if all the parties are unhappy. (ECON: Ryoko
Nakano)
¶6. (U) Japan Still Heavily Dependent on Oil from Middle East
------------------------------
The Agency for Natural Resources and Energy (ANRE) has announced
crude oil import trends for Japanese fiscal year 2006. Total
imports amounted to 238.5 million kiloliters (1.5 billion
barrels), 4.2 percent less than last year.
Imports from the Middle East declined slightly for the first time
in four years, although the region still meets 88.9 percent of
Japanese oil demand. Imports from Russia increased by 218.5
percent as ExxonMobil's Sakhalin One oil comes online.
Imports from Africa declined slightly, although Angola's exports
to Japan more than doubled and Equatorial Guinea's were up by
142.8 percent. The total share of Japan's oil imports coming
from Africa still comprises four percent of Japan's total. One
other area with a significant decline in imports was south Asia,
particularly Vietnam and Brunei. A breakdown of Japan's 2006
oil imports is attached. (ECON: Joan Siegel/Eriko Marks)
¶7. (SBU) Beef Audits to Start May May 14
------------------------------
TOKYO 00002177 003 OF 007
Progress grinded forward slowly and then screeched to a halt over
Japan's Golden Week holidays to make it easier for U.S. beef
exporters to sell in Japan -- before grinding slowly forward
again after the two governments worked out another deal on audits
of U.S. slaughter facilities.
The Japanese government agreed on May 8 to audit all U.S. beef
plants in accordance with Agriculture Secretary Johanns'
understanding of his earlier agreement - arrived at before the
April 26-27 Bush-Abe Summit -- with his Japanese counterpart,
Agriculture Minister Matsuoka.
Japan's Health Ministry (MHLW) had balked at the earlier
agreement and let us know on May 1 during a lull when much of
Japan's government was shut down for holidays.
MHLW told us May 1 that, as described, the ministry's inspectors
would not be able to assess U.S. meat producers' Japanese export
programs if the plants did not currently export to Japan, and
therefore inspectors would have to continue 100 percent box by
box inspection of beef coming into Japan from these plants. A
week later a satisfactory solution was worked out to allay these
concerns after a series of meetings and telephone calls.
The Embassy is working with the Health and Agriculture Ministries
on a schedule for the audits. About eight Japanese inspectors on
three teams will cover up to 30 U.S. plants, ending on May 26 in
Omaha, where the two sides will work on a joint press statement.
(ECON: Nicholas Hill)
¶8. (SBU) Health Ministry Backpedals on Flawed BSE Test?
------------------------------
Japan's onerous requirements for U.S. beef importers may have
been predicated on flawed lab tests. After months of waiting, a
research team of the Health Ministry reported this week that mice
injected with brain tissue from 21-month and 23-month-old cows
believed to be infected with BSE did not come down with the
disease themselves.
The results call into question a determination Japanese health
officials made in 2003, in which they cited BSE as the cause of
death of the two cows in question -- the only under 30 month-old
cows in the world for which BSE has ever been identified as the
cause of death.
The determination became the basis of the Japanese government's
insistence that no U.S. beef from cows over 20 months old be sold
in Japan.
The results made available this week and to be issued formally in
June by MHLW have been held up for months. Only after prodding
from Kazuyoshi Akaba, a Komeito Party member from Hyogo
Prefecture, during a Budget Committee hearing in March, did
pressure begin to mount for release of the data. Asahi has a
team following the developing story.
As a result of the original determination that cows as young as
20 months old could be tested for BSE, manufacturers in Japan of
BSE testing kits have made large profits in recent years
conducting blanket testing. Two former members of Japan's
independent Food Safety Commission Prion Sub Committee allegedly
profited handsomely from offering their expertise to BSE testing
kit manufacturers. (ECON: Nicholas Hill)
¶9. (SBU) Regulatory Reform Working Groups Set to Meet in Tokyo -
-----------------------------
Japanese and U.S. negotiators will meet on the week of May 14 to
iron out the draft text of the Report to Leaders. Once completed,
the Report marks the end of the annual cycle in the two
governments' Regulatory Reform dialogue. Working groups covering
cross sectoral issues; information technology/IPR; medical
devices and pharmaceuticals; and financial services are set to
meet in Tokyo. The telecommunications working group will
negotiate their text by DVC at a date to be determined.
For more detailed information regarding the talks, please contact
us directly. (ECON: Nicholas Hill)
¶10. (SBU) Abe's Downward Spiral Spurs Reform Efforts
------------------------------
TOKYO 00002177 004 OF 007
A longtime member of the Council for the Promotion of Regulatory
Reform (CPRR) told EMIN she was encouraged by the progress the
committee has been able to make over the last two months.
Previously decidedly downcast about the hope for meaningful
reform under the Abe administration, our contact cited three
factors that have contributed to recent progress. First, several
new members on the committee are very close to the Prime Minister.
Second, Abe's downward spiral in the polls had created a sense of
urgency in the Prime Minister's offices that "something" had to
be done.
Finally, she said Chief Cabinet Secretary Yasuhisa Shiozaki,
known for being particularly astute in economics, was now himself
involved in spurring on economic reforms. However, despite this
new reform imperative, agricultural issues are still too
sensitive and she predicted little progress would be made in the
sector. Instead, she pointed to the financial sector, including
a possible overhaul of firewalls separating the banking and
securities industries, as an arena where the Abe Administration
could demonstrate its reform credentials.
Our contact said that the recent tightening of rules pertaining
to amakudari ("decent from heaven"), which would reduce influence
peddling by making it more difficult for retiring senior
officials to take jobs at companies regulated by their former
ministry, is another example of recent progress. She stated that,
so great was the sense of urgency within the Kantei to project an
image of reform that Minister of State for Regulatory Reform
Yoshimi Watanabe announced the new amakudari regulations without
first getting buy-in from Ministry bureaucrats.
As a result, the regulations he announced were ultimately pulled-
back and watered-down, but regulations are in place nonetheless.
She said that "it was quite a pity" the originally aggressive
stance had to be scaled back, but predicted the public "will be
watching" to see if the new regulations are effective. (ECON:
Sally Behrhorst)
¶11. (U) Deregulation Leads Private Firms to Offer Trade
Insurance
---------
Nipponkoa Insurance Co., Ltd., which has a tie-up with AIU
Insurance of US AIG group, has announced that it now offers trade
insurance. Previously, Nippon Export and Investment Insurance or
NEXI, a government-backed entity, had a monopoly on trade
insurance. It is estimated that private sector entry into this
market will lower costs by 10-40 percent.
Under the slogan "what the private sector can do, let the private
sector do," a discussion panel within METI compiled a report in
December 2004 suggesting relaxing the regulations on trade
insurance businesses and opening the market to the private sector.
It also suggested that NEXI should strictly focus on those cases
that are economically unfeasible for private companies to offer
insurance. In April 2005 the market was partially opened, mainly
for services focusing on SMEs. In April 2007 the trade insurance
market for large companies was opened.
Nipponkoa Insurance Co., Ltd. is the fifth Japanese private
insurance company to offer trade insurance covering both country
risk and commercial risk, joining Tokio Marine & Nichido Fire
Insurance Co. (tie-up with Dutch Atradius NV), Sompo Japan
Insurance Inc. (French Euler Hermes), Mitsui Sumitomo Insurance
Co. (French Coface) and Aioi Insurance Co. (French Coface).
Foreign companies offering trade insurance include Zurich
Insurance and Federal Insurance.
The private companies have set their premiums lower than the
premiums set by NEXI. In response to the competition, NEXI is
considering lowering its premiums as well. Estimates in the
media suggest that costs will come down 10-40 percent. (ECON:
Eriko Marks)
¶12. (U) The New Coop Law Goes into Effect this Summer
------------------------------
A bill to amend the Consumer Livelihood Cooperative Society Law
was enacted on May 8, subsequent to passage by the House of
TOKYO 00002177 005 OF 007
Councilors or Upper House on April 20. The revised Cooperative
Law (or "Seikyo" Law) will enable affected cooperatives to expand
part of its business operations beyond the current geographical
restrictions. Cooperative insurance ("Kyosai") affected will
also face stricter regulations in order to beef up policyholder
protection. (ECON: Eriko Marks)
¶13. (U) Jobs Galore in Central Japan
------------------------------
Reflecting the continuing manufacturing boom in Central Japan,
the ratio of job offers to job seekers passed two to one in
Nagoya's Aichi prefecture for the first time since May 1992.
Aichi's 2.02 figure in March (up 0.08 from February) was far and
away the highest in Japan, a position the prefecture has now held
for 38 consecutive months. Reflecting the prefecture's economy,
there were 3.7 jobs for every skilled factory worker seeking
employment, but the ratio for office workers was only 0.6. Within
Aichi, Nagoya City was the strongest district at 2.61.
In comparison, the ratio for all of Japan stood at 1.03, off a
shade from 1.05 in February. Among the top five of Japan's 47
prefectures were Aichi neighbors Shizuoka, with the third
strongest ratio at 1.49, and Mie, fifth strongest at 1.43. To
the north of Tokyo, Gunma (1.52) and Tochigi (1.48) rounded out
the top five. Tokyo itself stood at 1.39. Tied for the worst
location for job seekers were Aomori, at the extreme north end of
Honshu, and Okinawa, both with ratios of 0.43.
The shortage of labor continues to trouble many major
manufacturers post has spoken to, but it appears to be something
they've learned to live with. The jobs-to-job seeker ratio in
Aichi has been over 1.5 (or conversely less than two-thirds of a
potential worker for every job needing to be filled) for nearly
three years.
One reason firms can thrive in the face of such numbers is the
ongoing decrease in the region's manufacturing labor intensity.
For example, at Nippon Steel's Nagoya Works, a major supplier to
the auto industry, crude steel output per employee has risen
about 340% since 1990. (Nagoya: Dan Rochman)
¶14. (U) Slow Growth of Kansai Economy in 2006, but the Gap in
SMEs to Grow
------------
According to a recent study by Nikkei Shimbun, the Kansai economy
continued growth in 2006. Exports to China, large-scale capital
investment, and consumption boomed, and employment figures also
improved due to strong performance by key Kansai economic
lynchpins such as Matsushita Electric, and Sharp. A Bank of
Japan (BOJ) official in the Sales Division of the Osaka Branch
analyzed that the capital investment in 2007 would continue to
grow in the region at a rate of approximately 2.7 percent. New
college graduate hiring surged more than 13 percent over 2006,
exceeding the national average of 9.8 percent.
On the other hand, bankruptcies among SMEs are on the rise. SMEs
subcontractors of booming large firms are growing, but small
players in sunset industries were hit by price pressure from
cheaper mainland imports. An Osaka City Credit Union official
financing mainly SMEs added that future interest rate hikes by
the BOJ will hit Osaka SMEs particularly hard, and 63 percent of
Osaka City Credit Union customers are apprehensive of the
negative impact of any increase in interest rates. (Osaka-Kobe:
Phil Cummings / Naomi Shibui)
¶15. (U) New Chairman of Kyoto Chamber of Commerce and Industry -
-----------------------------
The Kyoto Chamber of Commerce and Industry (Kyoto CCI) announced
that Yoshio Tateishi, Chairman of OMRON, will become the next
chairman of the chamber starting May 11. Current chairman
Junichi Murata has been in the position for two terms since 2001.
Murata greeted President Bush during his visit to Kyoto in 2005.
The pro-American Murata was a champion of new industries and
Kyoto tourism promotion, and is being hailed by local newspapers
as one of the most successful chairmen in the history of Kyoto
CCI.
Tateishi is the third son of OMRON (former Tateishi Electric Co.,
TOKYO 00002177 006 OF 007
Ltd.) founder and became the President of OMRON in 1987 following
the first son of founder. He is a well-known business leader,
who has promoted a "work-life balance" and introduced three
months leaves for managers in his company, a first in Japan.
A Kyoto CCI official said that Murata and other CCI members were
disappointed Kyoto did not become the main G-8 summit venue for
2008, and that the ministerial awarded to Kyoto was no
consolation prize. He said that Tateishi's goal will be pushing
for stronger growth of local SMEs, which make up 94 percent of
the organization's membership. (Osaka-Kobe: Phil Cummings /
Naomi Shibui)
¶16. (U) Microsoft Committed to Becoming Local Company in
Hokkaido
--------
On April 25, Microsoft Hokkaido invited over forty IT-related
company representatives and local government officials for the
opening of their new top floor office at the JR Tower Office
Plaza in Sapporo Station. Darren Huston, CEO of Microsoft Japan
and Corporate Vice President of Microsoft Corporation, opened the
event by stating that Microsoft is committed to operating in
Hokkaido as a local company. He explained that all employees at
their Sapporo office are Hokkaido natives, and they plan to
double the number of employees there with local hires. In
addition, the new Microsoft office will make their conference
space open to the public as a means of connecting with the local
community.
Prior to the opening, Huston described to the Consul General the
various corporate social responsibility programs Microsoft is
conducting with Hokkaido authorities. For example, Microsoft is
working with the city of Asahikawa to redevelop the website for
the Asahiyama Zoo. The zoo, recently one of the most popular in
Japan with more than 3 million visitors annually, desperately
needed to revamp its online profile. Microsoft is providing
Asahiyama Zoo with a state-of-the-art educational 3-D imaging
technology free of cost and training local IT companies and
Asahikawa city employees how to use it to promote the zoo more
efficiently by themselves.
Huston views such projects as long-term investments for Microsoft.
Some Hokkaido locals, however, are puzzled about the offers of
support since the concept of private-public partnerships has not
yet penetrated the area. (Sapporo: Ian Hillman/Yumi Baba)
¶17. (U) Bye, Bye, Kei Igawa
----------------------------
The New York Yankees Japanese import is heading to the minors.
Kei Igawa, picked up by the Yankees in a panic move after the
Boston Red Sox signed Japan's premier starter, Daisuke Matsuzaka,
over the winter, has flamed out.
With an earned run average of 7.63, Igawa was unceremonious sent
packing, not to pitch in triple A ball, but in single A ball in
Florida. In his last outing for the Yankees, Igawa blew a six-
run lead as New York's collection of store-bought multi-
millionaires lost to the lowly Seattle Mariners 15-11. (ECON:
Nicholas Hill)
¶18. (U) Red Sox Japanese Imports Doing Better
------------------------------
Meanwhile, the Boston Red Sox continue to run away with the
American League East, with a 22-10 record and six game lead in
the division.
And the team's Japanese imports are doing better. Daisuke
Matsuzaka has struggled recently, but he is getting enough run
support to post a 4-2 record so far. In his last outing on May
10, he out-dueled Toronto's Japanese import, Tomo Ohka, 9-3,
striking out eight and giving up only one run in seven innings.
Earlier, over the Golden Week Holiday, Matsuzaka was hit hard by
the Mariners, falling behind 5-0 in the first inning before the
Red Sox bats came back to rescue him. The team won 8-7.
In a separate development, Hideki Okajima, Boston's "other"
Japanese import, won the American League Rookie of the Month
Award in April. Since giving up a homerun on his first Major
League pitch, Okajima has made 14 consecutive appearances without
TOKYO 00002177 007 OF 007
being scored on.
The Red Sox last week hired a full time interpreter for Okajima,
in addition to Matsuzaka's interpreter, to handle all the press
attention. Red Sox coverage in Japan's media continues to be
extensive. (ECON: Nicholas Hill)
DONOVAN